Street Waits for Mel to Renew


At Viacom Inc., it all comes back to Mel. The entertainment giant took a blow last week as investors, still skittish over the lack of solid evidence that president and COO Mel Karmazin will remain at the company beyond this year, drove down the stock as much as 6 percent.

Viacom reported relatively strong fourth-quarter results last Wednesday, although the cable operations have shown slower profit-margin growth.

The company's share price dipped as low as $35.10 last Wednesday — down $2.43 (6 percent) — before rallying to $36.55 in 4 p.m. trading. On Feb. 13, the price declined another 41 cents.

"Mel and I understand and we're highly sensitive to the fact that a timely resolution is desirable, but we believe that it is better to get it right," chairman and CEO Sumner Redstone told analysts on a conference call. "Mel and I are working cooperatively with a committee of independent Viacom directors to reach a resolution as soon as possible."

Karmazin's employment contract is set to expire at the end of the year. Redstone has said publicly he would like to reclaim some power from his COO.

They tried to make nice during the conference call, but differences emerged. Asked whether Viacom would pay a dividend, Karmazin said he'd rather use cash flow for acquisitions and internal growth.

Redstone piped in that he agreed with Karmazin, but said Viacom's independent directors are evaluating the possibility of issuing dividends.

At Viacom's cable networks, revenue rose 16 percent in the quarter to $1.35 billion, while cash flow was up 10 percent to $580.6 million. Strong advertising revenue at its MTV Networks and Black Entertainment Television divisions, coupled with a 9 percent boost in affiliate license fees, helped to drive the growth.

Cash-flow margins — or cash flow as a percentage of revenue — at the cable networks declined about 3 percentage points, worrying some analysts. Viacom cited increased programming investments and said the margin was only down 1 percentage point for the year.

Cox's growth spurt

In other quarterly results, strong digital, high-speed data and telephony subscriber growth was the order of the day for Cox Communications Inc.

Cox's fourth-quarter revenue rose 16 percent year over year, to $1.3 billion, with operating cash flow rising 14 percent, to $491.9 million.

In the period, Cox added 136,000 high-speed data customers, ending the year with 1.4 million.

Digital subscribers increased by 84,000 customers to 1.8 million.

Cox also added 67,190 telephony subscribers, ending the period with 718,420 customers.

Basic-cable subscribers were up 1 percent (17,000 customers) in the quarter, to 6.3 million.

Cox reiterated its 2003 guidance: revenue and operating cash flow are expected to rise 14 percent to 15 percent.